Life-insurance policies can be resold to investors for more than just pin money. No more premiums either

With his only child entering college and a wife who works, David Blumenthal, 64, a mortgage broker in Philadelphia, recently concluded that he was carrying more life insurance than his family needed. But after paying premiums for five years on $1 million of term coverage, he didn't like the idea of simply letting the policy lapse and walking away empty-handed. So he took advantage of a relatively new option.

Blumenthal, who is in good health, converted his term insurance into two separate universal-life policies, one with a $780,000 death benefit and the other with a $220,000 death benefit. There's nothing new about converting from term...